Adaptive-Reuse Conversion Projects on the Rise, Tackling Stubbornly High Office Vacancy Levels

Key Takeaways:

• In June, the national office vacancy rate was 17.7% following a decrease of 170 basis points (bps) year-over-year (Y-o-Y).
• The national office listing rate averaged $33.67 per square foot last month, which was 2.4% lower than values recorded in June 2025.
• Nationally, the modest office supply pipeline inched up to nearly 29.6 million square feet of office space under construction last month.
• With more than $4.3 billion in deals closed since the start of the year, Manhattan, N.Y., topped the list for sales. It was followed by Dallas ($2.6 billion) and San Francisco ($2.4 billion).
• Among the eight large U.S. office markets where vacancy was below the national average, Manhattan, N.Y., and Miami averaged the lowest vacancy rates in June.
• Western and Northeastern U.S. markets had most of the leasing rates that were above the national average, while Southern and Midwestern markets had some of the most affordable office asking rates in June.
• Boston; Manhattan, N.Y.; and Dallas had the most active construction pipelines and were still the only markets where more than 2 million square feet of new office space was in development last month.

Trends & Industry News

Rise in Adaptive-Reuse Conversions From Office Space to Multifamily

With office values remaining at a historical low, developers see opportunity in conversions previously considered too risky. As such, the financial challenges typical of office-to-multifamily conversions are more approachable.

Per Yardi Matrix research, nearly half of all office property transactions with two or more sales prices for comparison were discounts since 2024. This equates to increasingly available projects for developers who are willing to go for bargains that offset the costs associated with converting a building’s use. Accordingly, in 2025, 11.8 million square feet of office-to-multifamily were completed or under construction — higher than in any prior year.

“Recognizing that office conversions can still be an expensive undertaking and difficult to pull off, the fact that a segment of buildings are trading at such a discount creates the opportunity for more conversions to pencil out. At the very least, this allows for creative solutions to be introduced on what to do with this oversupply.”

Peter Kolaczynski, Director, Yardi Research

Looking at an individual market level, data showed that nearly 60% of sales closed in Chicago since 2024 were discounted. And, with 95 million square feet considered suitable for property use conversion, the more accessible prices have supported an increase in office-to-multifamily projects. This growth in adaptive reuse has also contributed to keeping Chicago’s office vacancy rate down at 17.8% last month.

However, this is not the story in all major markets. For instance, Seattle has one of the highest vacancy rates in the nation (24.7% in June). Yet, while 47.5 million square feet of office space is suitable for conversion, Seattle has seen very little adaptive-reuse activity compared to cities such as Chicago.

Listing Rates & Vacancy

Vacancy Holding Steady in Portland, Ore

The national average full-service equivalent listing rate for office space was $33.67 per square foot last month after a dip of 2.4% Y-o-Y. Similarly, the national vacancy rate dropped 170 bps compared to the previous year to rest at 17.7% at the close of June. Notably, of the 25 largest markets that we analyzed, 18 saw decreases in their respective vacancy rates as compared to June of last year.

At the higher end of the spectrum, some of the top markets we surveyed continue to struggle with office vacancy holding above 20%. One of these markets is Portland, Ore., where office vacancy averaged 22.1% in June. Since rising above 20% in 2024, rates here have idled among the highest in the country.

One contributing factor to this stagnation has been major corporate relocations out of the city. Perhaps most significantly, U.S. Bank let its downtown Portland office lease at the U.S. Bancorp Tower expire in 2024. Spanning several floors and encompassing more than 222,000 square feet, this vacancy contributed to a significant rise in the metro’s rate. The building sold last year at an 88% discount from its previous sale in 2015.

 

Transactions

Phoenix Sees Bump in Sale Price Per Square Foot

In June, year-to-date office sales added up to more than $30 billion across 1,296 transactions, while sale prices averaged $195 per square foot. Additionally, nearly halfway through the year, a total of 18 of the top 25 metros analyzed for this report saw overall sales in excess of $500 million during the first six months of 2026.

Phoenix is among the office markets to see an upward trend in terms of sale prices. According to Yardi Matrix research, prices here increased for the last two years to reach $184 per square foot in June 2026. In particular, since 2020, medical office values have fared much better here than in other markets.

To that end, last month, Fidelity Investments acquired the 91,805-square-foot medical office building at 3530 S. Val Vista Drive in Gilbert, Ariz., for $51.5 million — a 56% premium to the $33 million price that RX Health & Science Trust paid for the property in 2021.

 

Supply

Dallas Maintains One of the Largest Pipelines in the Country

As of June, nearly 29.6 million square feet of office space was under construction in the U.S. markets we tracked for this report. According to Yardi research data, this represented roughly 0.4% of stock. Also as of June, developers have delivered 11.1 million square feet of office space.

Specifically, three of the 25 markets we analyzed had more than 2 million square feet (each) in development last month — Manhattan, N.Y.; Boston; and Dallas.

Throughout the last 12 months, developers in Dallas have started around 1 million square feet of office construction. By June, the pipeline here totaled 2.9 million square feet (1% of stock). Although this marked an 11% Y-o-Y decrease in construction, there’s reason to be optimistic about activity picking up in the future.

That’s because, relative to other metros, Dallas has solid office employment growth, which was at 0.6% in May. And, because Dallas has been growing as a regional financial hub, the positive employment trend has been led by the professional and business sector, as well as the financial services sector, in recent years. Moreover, current demand from businesses relocating to or expanding in Dallas signals support for additional projects as the metro continues to grow.

One example is Goldman Sachs, which plans to expand its local presence with the construction of its new, 800,000-square-foot campus at 2323 N. Field St. — a project that has already broken ground and is expected to deliver sometime in 2028.

 

Western Markets

San Francisco Tops Rents, YTD Sales, Price per Square Foot & Vacancy

Vacancy rates were above the national average of 17.7% in June in the majority of the Western U.S. markets that we surveyed for this report. As a matter of fact, with the exception of Los Angeles (14.4% vacancy) and Phoenix (16.5%), all markets in this group averaged vacancy rates at or higher than 19% last month.

More precisely, vacancy for office space in San Francisco was the highest in the region, averaging nearly 26% in June. Next, Seattle was second with vacancy averaging 24.7% last month.

San Francisco also topped the regional list for leases: Asking rates here averaged a little more than $65 per square foot in June, which was almost double the national average of $33.67.

Nearby, Bay Area office space remained the second-priciest in the region last month with asking rates averaging $56.25 per square foot — the only other Western U.S. market on our list where average rates surpassed $50 per square foot last month.

Not far behind, the Los Angeles market (#3) and office space in San Diego (#4) each averaged more than $40 per square foot — the only other markets in the region to do so — and closed out the standout block of California markets occupying the top four spots on the list for rents.

 

 

Otherwise, Portland, Ore.; Phoenix; and Denver were the only large markets in the Western U.S. where office asking rates were below the national average in June. Each averaged around or less than $30 per square foot.

Meanwhile, when looking at office sales in the region, data showed that northern California markets held a comfortable lead. Here again, San Francisco — which saw nearly $2.4 billion in sales close during the first six months of the year — took the top spot, followed by the neighboring Bay Area, where year-to-date transactions surpassed $2 billion. At the close of June, they were the only two Western U.S. office markets where sales had reached above that mark.

Further south, Los Angeles commanded the third-highest sales total in the region so far this year ($1.2 billion). It was followed by sales of Phoenix office space, which added up to $711 million since the start of the year through June. Denver and Seattle were the only other Western U.S. markets to see office sales surpass $500 million during the first six months of the year.

Of course, high-profile assets in gateway markets continue to command top-tier prices. Namely, San Francisco office sales closed through June averaged $610 per square foot, which was the highest nationwide thus far.

California markets also led the region in terms of development in June: San Diego had a little more than 1.7 million square feet under construction, followed by Los Angeles office space under development (1.43 million square feet). Together, they accounted for more than 57% of the nearly 5.5 million square feet currently in development across the largest markets in the region.

Midwestern Markets

Chicago Office Sales Surpass $1 Billion, Vacancy Nears National Average

The top Midwestern U.S. office markets we looked at for this report remained some of the most affordable in the country in June, in terms of both average listing rate and for-sale price per square foot.

In this region, asking rents for Detroit office space were the most accessible with rates here averaging $21.47 per square foot. Next, the average asking rate for office space in Minneapolis; St. Paul, Minn.; and the wider Twin Cities metro submarkets rested at $27.63 per square foot. At the same time, occupancy levels in the Minnesota market last month also kept vacancy at 17.8% to make it one of the closest in the region to the national average of 17.7% last month.

Unsurprisingly, Chicago office space was the region’s priciest for leasing in June with asking rents averaging $28.39 per square foot. Additionally, the Windy City’s occupancy levels averaged an 17.8% vacancy rate — on par with the Twin Cities market and also near the national average.

 

 

Likewise, the highest regional office sales total so far this year was also in Chicago: By the start of July, the largest office market in the Midwest had seen $1.18 billion worth of office space change hands since the beginning of the year. Then, at quite a distance, office sales in Minnesota’s Twin Cities followed in second place with a total of $506 million through June 2026.

Other than those, development in the region remained quite slow last month with a combined total of a little more than 1.3 million square feet of office space under construction in June across the Midwestern U.S. markets we analyzed.

Southern Markets

Texas Markets Dominate Construction Pipeline, Miami Tops Asking Rates

In the South, Miami; Austin, Texas; and Washington, D.C. remained the region’s top three markets for asking rents and were the only Southern U.S. markets to see full-service equivalent listing rates averaging more than $40 per square foot in June.

At the opposite end of the ranking, office space in Orlando, Fla., had the lowest asking rent average in the region. It was also the only market in this group to average less than $30 per square foot last month.

In this case, a look at year-to-date office sales showed that seven of the 10 Southern U.S. markets we analyzed for this report recorded totals higher than $500 million through last month. Most notably, three of them saw year-to-date sales surpass the $1 billion mark: Dallas had the highest year-to-date sales total as office transactions here amounted to more than $2.6 billion last month. Next, sales of Washington, D.C. office space added up to roughly $1.5 billion through June, followed by Houston ($1 billion).

 

 

Then, looking at leasing data, office space in Miami had the highest average full-service equivalent listing rate in the region in June at $61.04 per square foot. Not to be outdone, office space in Austin, Texas, asked an average of nearly $47 per square foot, followed by Washington, D.C. — the only other market in this regional group to see lease rates average more than $40 per square foot last month.

One other market in the region also rested above the national average last month: Asking leasing rates for office space in Atlanta averaged nearly $37 per square foot.

It’s worth noting here that Texas’ Austin and Houston had the highest vacancy rates in the region in June 2026 and were also the only ones to exceed 20% in this respect. Conversely, Miami and Tampa, Fla., had the highest rates of occupancy and were among the three Southern U.S. markets with vacancy below the national average last month. The third was Orlando, Fla.

As for construction, data showed that Texas markets carried a significant portion of the office pipeline in the region. In June, nearly 2.9 million square feet of office space was in development in Dallas and 1.27 million square feet was under construction in Austin — the only markets in the region to each claim more than 1 million square feet in development last month. Combined, they account for nearly half of the regional pipeline.

Together with the 800,000 square feet under construction in Houston, Texas markets accounted for nearly 17% of the national pipeline.

Northeastern Markets

YTD Office Sales Surpass $4 Billion in Manhattan, N.Y., as Boston Continues to Lead Construction

In June, Manhattan, N.Y., had the highest average listing rate in the region at $72 per square foot. For comparison, asking rents for Philadelphia office space averaged $31.80 per square foot, making it the only Northeastern U.S. office market to ask less than the national average of $33.67 per square foot last month.

Looking at construction, two of the four largest office markets in the Northeast had more than 2 million square feet of new office space in development (each). Together, they accounted for more than 20% of the national pipeline last month.

Boston led supply in the region as office projects in development here totaled more than 3.4 million square feet. Then, the Manhattan, N.Y., office space pipeline was the second-largest in the region last month with 2.9 million square feet under construction. With that, these two Northeastern U.S. markets accounted for about 21% of the country’s total pipeline of approximately 29.55 million square feet last month.

As one might expect, analysis of office sales showed that transactions in Manhattan, N.Y., amounted to the largest sales total since the start of the year in both the region and the country at nearly $4.3 billion. Meanwhile, transaction activity in Boston during the first six months of the year totaled $618 million in year-to-date office sales. Next, sales of New Jersey office space added up to $533 million since the start of the year through June.

 

Office-Using Employment

Effect of Job Losses in Tech Reaches Washington, D.C.

According to data from the Bureau of Labor Statistics, office-using sectors of the labor market experienced a combined gain of 27,000 jobs in June, led by the professional and business services sector. At the same time, the information sector lost 9,000 jobs, while employment in the financial activities sector stayed flat.

On an annual basis, national employment in office-using sectors decreased by 101,000 positions (a 0.3% Y-o-Y drop), even as total non-farm employment across the country grew by 0.3% during the same timeframe.

At the metropolitan level, Washington, D.C. leads the nation’s major markets in office employment decline. As of May, employment in D.C. decreased 3.6% Y-o-Y — a contraction surpassed by only Portland, Ore. Office employment in the nation’s capital is feeling the combined effect of federal job cuts and increased implementation of simulated reasoning technologies. In particular, employment in the metro’s information sector declined 4.6% Y-o-Y. It was followed by professional and business services (-3.9%) and the financial sector (-1.3%).

 

Methodology

This report covers office buildings that are 25,000 square feet or larger. Listing rate and occupancy information was based on Yardi Research data.

Listing rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period.

Vacancy refers to the total square feet vacant in a market (including subleases) divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations. For reporting purposes, A and A+/trophy buildings were combined.

Stages of the supply pipeline:

Planned — Buildings that are currently in the process of acquiring zoning approval and permits, but have not yet begun construction.

Under Construction — Buildings for which construction and excavation have begun.

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors information, financial activities, and professional and business services. Employment numbers are representative of the metropolitan statistical area and do not necessarily align exactly with CommercialCafe market boundaries.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values were estimated using sales comps based on sales that were similar in terms of the market and submarket; use type; location and asset ratings; sale date; and property size.

Market boundaries in the CommercialCafe office report coincide with markets defined in the CommercialCafe Markets Map and may differ from regional boundaries defined by other sources.

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